Question & Answer
Question:: If there is an apparent discrepancy between a regulation and an act, which one should the bank follow? An example would be the right of rescission which the Truth in Lending Act gives to obligors who are using their principal dwelling to secure the loan. This appears to mean that only the borrowers who live in the house used as security have the right to rescind. However, Regulation Z provides that each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind. This appears to mean that the consumer does not have to be an obligor and does not have to live in the house.
Answer: Generally, regulations are more specific than the act. The purpose of regulations is to explain, clarify, and provide greater precision to the concepts passed by Congress.
Many of the compliance laws we work with are very detailed. The Expedited Funds Availability Act and the Truth in Lending Act are two clear examples of micro-management through detailed legislation. However, both of these laws specifically provide for regulations. Both of these laws direct the Board of Governors of the Federal Reserve System to develop and issue regulations. When issued, these regulations carry equal force under the law. These regulations contain the principles of the law but may contain more detail. Occasionally, Congress gives the regulation writers the authority to exempt or modify a rule. More often, regulations contain more detail than the act. Detailed as TILA is, Regulation Z contains even more.
So, when deciding whether to look to the act or the regulation for the final say on rescission, you should look at the Regulation. It is always useful - and downright important - to refer to the act. It, after all, is the authoritative source on which the rest is based. But you must also look at the regulation.
In the rescission example you raise, there is an important difference between the wording of the act and the wording of the regulation. The regulation, by protecting all consumers with an ownership interest, actually includes more consumers under the rescission umbrella. The consumer need not be an obligor but must have an ownership interest in the house.
Although far more protective than the act, the regulation draws a clean line that is easy to identify and follow. As a secured lender, you need to know the ownership of the property in order to properly draw up and execute security instruments. The same people get the rescission form.
Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 2, 2/99
First published on 02/01/1999